Crude oil prices surged on Monday as stalled US-Iran peace negotiations signalled potential disruptions to Middle East energy exports. With a comprehensive agreement remaining elusive and repeated false starts, the continued closure of the Strait of Hormuz has intensified supply concerns.
Brent crude rose 2.63% to $108.10 per barrel, while US West Texas Intermediate (WTI) crude futures advanced 2.44% to $96.70. Elevated energy prices continue to pose a significant challenge to India’s macroeconomic stability.
Analysts at Emkay Global Financial Services believe that a prolonged closure of the Strait will likely compel the government to increase retail fuel prices. They expect an initial hike of ₹10 per litre.
“While this may not fully offset the under-recoveries of oil marketing companies (OMCs), a steeper increase could trigger substantial inflationary pressures and broader macroeconomic risks,” Emkay said in a report. “If crude oil prices remain elevated over the medium term, further calibrated price hikes are likely.”
Despite the current pressures, the brokerage views the energy shock as transitory and expects policy measures to cushion the impact on consumers.
India’s crude basket is currently trading around $110 per barrel. At these levels, under-recoveries for OMCs are estimated at approximately ₹18–20 per litre for petrol and diesel, even after the ₹10 per litre excise duty cut announced on March 27, 2026.
“We see limited likelihood of the entire burden being passed on to consumers. A sharp price increase could dampen growth and lead to adverse second-order effects, including weaker tax collections and increased fiscal strain,” the report noted.
Emkay estimates that a 10% increase in retail fuel prices strikes a balance between alleviating OMC losses and containing consumer impact. It also highlighted that fuel prices have remained unchanged since 2022, suggesting that a moderate increase may not significantly impair affordability beyond the initial sticker shock.
If crude oil prices remain above $100 per barrel for the next two to three quarters, the brokerage expects additional rounds of price hikes. In such a scenario, retail fuel prices could rise by ₹18–20 per litre over the next three to six months. However, this is not the base case, as Emkay assigns a low probability to a prolonged geopolitical stalemate in the Gulf.
The firm estimates an inflationary impact of approximately 75 basis points, including second-order effects. Given that the proposed price hike would address only about 53% of current under-recoveries, it leaves little room for the government to reverse the excise duty cuts implemented in March, which carry a fiscal impact of roughly 0.2% of GDP.
Sectoral Impact
Emkay Global expects several sectors to face headwinds from higher fuel prices:
Automobiles and Auto Ancillaries: Likely to be negatively impacted, although electric vehicle players such as Ather Energy could benefit.
NBFCs: Companies such as Mahindra & Mahindra Financial Services, Shriram Finance, and Cholamandalam Investment may face pressure.
Logistics: Firms including VRL Logistics, Delhivery, Blue Dart Express, and TCI Express are expected to see margin compression.
Metals: Hindalco Industries and Jindal Steel could be adversely affected due to higher input costs.
Retail and Consumption: Varun Beverages, QSR operators, and Metro Brands may see demand pressures.
Telecom Infrastructure: Indus Towers could also face indirect headwinds.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
